Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector

Mathias Kifmann and Luigi Siciliani

No 4977, CESifo Working Paper Series from CESifo

Abstract: This study investigates hospitals’ dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients’ severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.

Keywords: hospitals; DRGs; selection; severity (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L44 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Average‐Cost Pricing and Dynamic Selection Incentives in the Hospital Sector (2017)
Working Paper: Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector (2014)
Working Paper: Average-cost pricing and dynamic selection incentives in the hospital sector (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4977

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